"Argentina Insurance Report Q4 2012" now available at Fast Market Research

The Argentina Insurance Report considers the prospects for life and non-life insurers in the country. At first glance, the newsflow from Argentina's insurance sector in H211looks good. There has been strong growth in premiums in both the non-life and the life segments through 2011 and into Q112. Several companies have highlighted that their Argentine businesses are contributing meaningfully to the development of their regional operations. Some players have confirmed that profitability has been improving. Unlike in other parts of the world in 2011, or Chile in 2010, there have not been major catastrophe losses. In the non-life segment, Australia's QBE has emerged as a major player. QBE bought HSBC La Buenos Aires Seguros from HSBC and has entered into a 10-year bancassurance deal with the latter's bank in Argentina. Meanwhile, many of the leading local groups continue to benefit from their associations with government-backed financial institutions, from the support of policy-holders who see their own interests as being closely aligned with mutual insurers, and/or strong brand names.

Nevertheless, we continue to highlight the structural weaknesses of Argentina's insurance sector. Both of the main segments are under-developed by most metrics. In particular, Argentina's long history of financial instability means that households tend to be reluctant to use life insurance which, by definition, requires a long-term contract between the client and the underwriter of the risk. The competitive landscape is fragmented: many of the largest local groups lack scale in anything other than a purely Argentine context. In past reports, we have suggested that multi-national companies with operations in Argentina face barriers to exit. In view of the BBVA and QBE/HSBC deals, we would describe this aspect differently: multi-nationals can exit the Argentine market, but most easily if they have a business that another multi-national wants to buy and/or can assist with distribution. Meanwhile, regulatory changes and policy shifts in the insurance sector - as in the broader financial services industry - are often motivated by politics rather than economic rationalism.

In our Q212 report, which was written at the beginning of the year, we noted that 2012 'may well be a year where Argentina's insurance sector changes dramatically - for better or worse.' Six months later, the jury is still out. The latest figures available from the regulator, which pertain to periods ending December 2012, indicate that, for all the apparent dynamism in the non-life segment, penetration (ie: premiums as a percentage of GDP) remains static. The life insurance segment is still a long way from a position where it can be described as an important channel for organised savings. As ever, there remains the possibility that government policies have unintended and adverse effects.

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